Thursday, October 02, 2008

The Politics of Presidential Spending

I advise you click on the title above and go directly to the article. The article contains some great graphs not included below.

by R.W. Bradford

Most people believe that Democrats are big spenders and that Republicans are tight-fisted. The evidence leads to a very different conclusion.


How do various political regimes affect government spending and, hence, the size of government's intrusion into our lives? This is a fundamental issue in political and economic theory.

R.W. Bradford is editor and publisher of Liberty.
Dr. Milton Friedman, Nobel laureate in economics and one of our era's greatest advocates of liberty, recently entered the debate on the historical background of the question. Dr. Friedman wrote to Liberty challenging my claim that "government spending grew rapidly" during the Reagan presidency. Friedman offered as evidence a graph showing "Federal non-defense spending as a percentage of National Income" from 1960 to 2003. This graph showed a leveling off of such spending in 1983. Friedman stated that "the record speaks for itself" and offered no further argument or data.

I couldn't see why "government spending" should be limited to "federal non-defense spending." Nor could I see why spending should be normalized by national income, unless one believes that the government is somehow entitled to a certain portion. It made more sense to me to consider "government spending" to refer to all the money government spends, to adjust the actual spending figures for inflation, and to normalize spending for changes in population.

I searched in vain for figures on government spending per capita, corrected for inflation. But I found on the Census Bureau's website annual government spending for each fiscal year from 1947 to 2003 as well as annual population figures, and, of course, the Consumer Price Index is available from the Bureau of Labor Statistics. So it was just a matter of putting the numbers into a spreadsheet and doing relatively simple calculations to determine annual government spending per capita, and to see whether it grew more slowly during the Reagan years than before or since. The data verified my earlier claim: spending grew a little faster during the Reagan years than during the Carter and Ford years that preceded his terms in office, and at a much faster rate than during the Bush I and Clinton years that followed. I wrote a brief response to Friedman, which was published in the October Liberty.

Since 1970, spending has grown 64% faster when a Republican sits in the White House than when a Democrat does.
It quickly occurred to me that the data I had developed might help answer questions like these:

Does spending grow more slowly during Republican presidencies than during Democratic presidencies?
Does spending grow more slowly when Republicans control the House? the Senate?
Does divided government (in which one party controls Congress and the other party controls the White House) result in lower spending growth? If so, does spending grow faster under Republican presidents with Democratic congresses than under Democratic presidents with Republican congresses?
So I added fields to my database for the political affiliation of the president and the party which controlled each house of Congress during each fiscal year, and began to look for correlations. A summary of the data can be found in the chart below.

It quickly became evident that the more recent data are quite different from the earlier data in two significant ways:

During the earlier years, annual changes in government spending were much greater than in later years. During the first six years of available data, during which Harry Truman was president, the average annual variation in per capita spending was 14.6%. The highest average annual change in any six-year period since Truman was president was 5.6%. As you can see from the graph below, which shows the year-to-year absolute change in spending, spending has become much less volatile over the years, and especially after 1970.
During the years before the presidency of Republican Richard Nixon (i.e., before fiscal year 1970), there was a strong correlation between the Republicans and lower growth in government spending, and between the Democrats and higher growth. Since 1970, this correlation has hardly existed.

Prior to 1970, the correlation was strong:

When a Republican held the White House, spending fell by an average of 0.70% per year; with a Democrat in the White House, it grew by an average of 5.98%.
With Republican control of Congress, spending fell by an average of 2.12% per year; with Democrats in control, spending rose by an average of 4.82% annually.
With the GOP in control of both the White House and Congress, spending fell by an average of 6.85% per year. It is worth noting that this is a very small sample — just two years (fiscal years 1954–55). During the twelve years that the Democrats controlled Congress and the White House, spending rose by an average of 6.55% per year.

During the six years of split government with a Republican White House, spending grew at an average rate of 4.92%. During the two years (fiscal years 1948–49) of split government with a Democrat in the White House, spending grew by 1.46%.

When Democrats controlled the White House plus both houses of Congress, spending grew at 1.70% per year, slightly below the average growth rate of 1.83% for the entire period.
This strong correlation between spending growth and the party affiliation of the president disappeared with the election of Richard Nixon in 1968.

A New Era Begins
Starting in 1968, a very different pattern emerges. Government continued to grow, but year-to-year spending changes became much less volatile. Part of the reason is that during the 1947 to 1969 period, government spending more than doubled, so that absolute changes resulted in much smaller changes expressed as percentages. We can hypothesize about other factors causing this drop in volatility; for example, the abandonment among Republicans of opposition to the welfare state.

But much more importantly, the correlations between spending and political parties changed radically. Prior to fiscal year 1970, there were very strong correlations between fiscal restraint and Republican control of the White House and Congress, and between spending increases and Democratic control of those institutions. Since then, there has been hardly any correlation, despite the fact that Republican candidates for office generally claim to favor fiscal restraint and Democratic candidates for office generally claim to favor the expansion of government.

Consider the following:

In the twelve years that a Democrat has sat in the White House, spending has increased at an average rate of 1.29% per year; during the 22 years of Republican presidencies, government spending has risen at an average rate of 2.12%. In other words, spending has grown 64% faster when a Republican sits in the White House than when a Democrat does.
During the 20 years Democrats have controlled both houses of Congress, spending has grown at an average rate of 1.84% per year, more than double the average rate of 0.89% per year during the six years the GOP ran Congress. (During the other eight years, when control of Congress was split between the two parties, spending grew at an average rate of 2.52%. The split-control years all occurred during Republican presidencies.)
When Democrats controlled the White House plus both houses of Congress, spending grew at 1.70% per year, slightly below the average growth rate of 1.83% for the entire period.
The slowest spending growth occurred when a Democrat sat in the White House and Republicans controlled both houses of Congress. Spending rose by an average of just 0.89% during the six years of this situation, which all occurred with Bill Clinton as president and Newt Gingrich as Speaker of the House.
During the 14 years Republicans controlled the White House and Democrats controlled both houses of Congress, spending grew at an average annual rate of 1.92%. During the eight years with a Republican president and a split Congress, spending grew at 2.54% per year.
All this must come as a shock to the overwhelming majority of Americans who believe that Democrats are spenders and Republicans want to cut government spending. The simple fact is that during the past 34 years, government spending has grown significantly faster when a Republican has sat in the White House.

But the old prejudice still seems to have some validity regarding Congress: Democratic-controlled congresses have increased spending at a rate more than twice the rate that Republican congresses have.

Government spending has grown fastest when a Republican was in the White House and Democrats controlled Congress. It has grown most slowly when a Democrat was president and Republicans controlled Congress.

* * *

To this point, everything I've written is strictly factual, derived from figures published by the Bureau of the Census and the Department of Labor. So far as I am able to determine, these facts cannot be unchallenged.

But they are open to interpretation, and what follows is an attempt to provide background and explanation for why the growth in government spending in relation to political control of Congress and the presidency has taken the course I've described above.

The Early Post-War Years (1947–1969)
The strong correlations between Democrats and spending and between Republicans and restraint during the early postwar period make perfect sense. The Democratic administrations of Truman, Kennedy, and Johnson were characterized by war and the expansion of the welfare state, both of which are expensive projects, while the single GOP presidency was a time of peace and restraint.

Although Ike was criticized by many conservatives for not slashing government enough, government spending per capita actually fell during his presidency.
The domestic policy of President Harry Truman (fiscal years 1947–53) called for federal subsidies for (and control) of medical care, housing, and education, as well as other expansions of government programs, under the slogan of "The Fair Deal." Not all of Truman's ambitious program was enacted, but enough of it was implemented that in combination with the Korean War (which began in fiscal year 1950) government spending increased at an average rate of 6.77% during Truman's second administration.

John F. Kennedy (fiscal years 1962–65) was elected on a platform calling for increased government spending domestically and an aggressive anti-communist foreign policy. But a coalition of conservative southern Democrats and old-line Republicans made it difficult to enact his domestic program and, with the exception of his abortive invasion of Cuba in 1962, his war against communism didn't really come to fruition until after his untimely death. Spending grew at an average of 3.27% per year during his brief administration.

Lyndon B. Johnson (1965–69) called for a massive increase in the welfare state, under the slogan of the "Great Society," and greatly escalated the war in Vietnam, which Eisenhower had almost entirely avoided and for which Kennedy had laid the groundwork. Unsurprisingly, government spending increased rapidly during his presidency. During his only full term, spending rose at an average rate of 6.46% per year.

The only Republican to capture the White House during this period was World War II hero Dwight D. Eisenhower. Although he was criticized by many conservatives for not rolling back government as much as they wanted, his is the only administration since World War II in which government spending per capita actually fell. He combined fiscal restraint on domestic programs with an inclination to disentangle America from wars abroad: he presided over the end of the Korean War, refused to get involved in the wars in the Middle East, and did what he could to keep America from greater involvement in Vietnam. During the first two years of his administration, when he had the support of a GOP Congress, spending fell by more than 13%, but during the final two years, with the Democrats firmly in control of both houses of Congress, spending rose at an annual rate of 1.46%. Even with these increases, spending fell at an average annual rate of 0.70% during his administration.

The New Era (1970–2003)
The fact that Republican presidents have been bigger spenders than Democratic presidents during the past 34 years startles many people. This is probably a product of people's greater inclination to listen to the rhetoric of the candidates than to pay attention to what winning candidates actually do once they are in office.

Consider the case of Ronald Reagan. He called for cutting back government, but presided over a massive increase in the size and power of government, at least as measured by government spending per capita. Government spending during his administration grew at an average rate of 2.28%, nearly three times as fast as during the administration of Democrat Bill Clinton.

George W. Bush is establishing himself as the biggest spender since Lyndon Johnson.
Similarly, Richard Nixon was elected based on his promises to cut back government, but spending increased during his administration at a faster rate than during any subsequent administration except that of George W. Bush. Nixon pursued policies that he thought would maximize his chances for reelection and his historic reputation. He had no interest in repealing any of the Great Society measures. His "de-escalation" of the Vietnam War proceeded very slowly, and involved sending more troops and dropping more bombs. His legacy includes such expansions of government power as the War on Drugs and the Environmental Protection Agency. The result? During his years in the White House, government spending grew at an average rate of 2.31%, virtually identical to the rate during the Reagan years.

George W. Bush was elected on the strongest and most explicit conservative platform ever, yet he supported massive increases in military spending, created a whole new bureaucracy to fight the War on Terror, invaded two countries, and pushed through the largest single increase in welfare spending in decades. Not surprisingly, spending has grown the fastest during his years of any presidency since Lyndon Johnson's.

The other two Republican presidencies were different cases. Gerald Ford, who assumed the powers of the presidency when Nixon resigned in disgrace, was an old-line, fiscally conservative Republican who faced a very hostile and overwhelmingly Democratic Congress. Ford responded by using his veto power more frequently than any president before or since. The result was the lowest average annual spending increases of any presidency since Eisenhower.

George H. W. Bush was also a special case. He presided over a country that favored fiscal restraint and was elected largely because of his promise not to raise taxes. When he broke that promise, many Congressional Republicans treated him as if he were their enemy. Meanwhile, the Democratic majority in Congress, smelling blood, focused on making him look bad, sensing a victory of the White House for them. They succeeded. The result: spending grew at 1.15% per year during his presidency, the lowest rate of increase of any post-war president except Eisenhower.

The two Democratic presidents of this era faced radically different situations. Jimmy Carter was elected during post-Vietnam public cynicism about the military, and his years saw actual cuts in military spending. He eschewed most of the traditional Democratic calls for increases in welfare programs. Not surprisingly, spending grew at a relatively low 1.70% annual rate during his administration.

Bill Clinton is perhaps the most interesting case. He was elected very narrowly, on a platform that included a government takeover of the entire health-care system, the largest expansion of government power any president had proposed in decades. But he got only 43% of the vote, with the remaining 57% going to candidates who plainly opposed the measure and portrayed themselves as fiscal conservatives. Upon his wife's advice, he pursued the take-over of medicine in a manner so high-handed that, in combination with strong opposition from conservatives and libertarians, the entire package was abandoned.

After Republicans won both houses of Congress in 1994, Clinton, having no real political convictions, proclaimed that the "era of big government is over," and embraced other elements of the GOP agenda, such as welfare reform. The result was that spending grew at a rate of just 0.81% during his administration, the lowest growth rate since Eisenhower.

What can we learn about the future from this study? Past experience is not a perfect predictor of the future, but it seems far more likely that America's government will become larger, more powerful, and more expensive if George W. Bush is reelected than if he is defeated. A Democratic victory in either (or both) houses of Congress would likely accelerate this trend. Republican congresses combined with Republican presidencies during the past 34 years have consistently resulted in faster spending growth than Democratic presidencies. Democratic congresses have tended to increase spending faster than Republican congresses. And spending has grown faster with a Republican president and Democratic control of one or both houses of Congress than in any other situation. In addition, Bush is establishing himself as the biggest spender since Lyndon Johnson.

The election of John Kerry as president would likely result in slower spending growth, especially if Congress remains in control of the GOP, which seems overwhelmingly likely. Government spending grows most slowly with a Democrat in the White House and the Republicans in control of Congress. While John Kerry's positions have been all over the place during the campaign, ranging from pro-war to anti-war, from support for the traditional Democratic tax-and-spend policies to "Bush lite" reforms, his record in the Senate is generally one of fiscal responsibility. And the Republicans, particularly those in the House of Representatives, have shown a strong inclination against all sorts of spending. But you never know.

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